Are you looking for an insurance policy? Do you know what is your insurance score? The insurance companies often consider your insurance score before offering you an insurance policy. Go through this article to know all about insurance score.
Insurance score – What it is
Insurance score or insurance risk score is basically a score which the insurance companies use to predict the likelihood of a person filing an insurance claim. Your insurance score is calculated based on the information in your credit report. This is because historical data has revealed the fact that a person with poor credit rating is much more likely to file an insurance claim.
Insurance score – Its importance
The insurance companies select the amount of premium you need to pay, for the coverage, based on your insurance score. Therefore, just as your credit score predicts your creditworthiness, your insurance score predicts the likelihood of filing an insurance claim. So, if you have a lower insurance score, then your chances of filing a claim is higher than a person with a higher score. Therefore, you may have to pay a higher premium if your score is less than the average. Not only during buying an insurance policy, but also the insurers consider your insurance score when your policy is up for renewal. If your score is low, the companies may charge higher rate for the required coverage or might also deny the coverage.
Insurance score and credit score – The similarities
Going through this article, you might wonder that since credit scores and insurance scores – both are calculated on the basis of the information present in the credit reports, so are they basically same? The answer is ‘no’. However, there are certain similarities between the two scores, which are given below.
· Both the scores are governed by Fair Credit Reporting Act (FCRA)
· You can save money if you have high credit score and insurance score
· Both the scores are calculated on the basis of your credit report information
Insurance score and credit score – The differences
The differences between a credit score and an insurance score are given below.
· Your insurance score determines your likelihood of filing claims in future whereas, your credit score determines your creditworthiness, that is, how likely you can manage your loans properly.
· Insurance score has an influence on your insurance premium and coverage whereas credit score has an influence on the terms and conditions of a loan.
· As the name suggests, your insurance score is used by your insurance companies whereas your credit score is used by financial institutions, such as, banks and other credit institutions.
Factors that affect your insurance score
Following are the factors that affect your insurance score.
The favorable factors are:
· A long credit history might help you have a better insurance score.
· You will have a higher score if your credit utilization ratio is low.
· It will be in your favor if you can manage several credit accounts well.
· No late payments help in achieving a better score.
The non-favorable factors are:
· A number of past due accounts are not favorable at all
· Collection accounts in your credit report also result in a low score
· You may have a lower insurance score if you have applied for a number of loans in the recent past
Therefore, not only for achieving a good credit score, you should also try to have a clean credit report in order to have a good insurance score. It will help you enjoy a better lifestyle since you will be stress free as you will get the required insurance coverage at a comparatively lower price. Therefore, try to repay your loans on time and check your credit reports regularly in order to have a clean credit report and in turn, it will help you achieve a high credit and insurance score.